Developer's lawsuit stems from Oak Tree foreclosure

A limited liability company headed by realty developer Lewis Wallner II seeks $50 million in a lawsuit filed against the lender who foreclosed on his 6200 Oak Tree office building in Independence and the Indiana-based developer that now owns the structure.
6200 Oak Tree LLC, an entity formed by King James Group of Westlake to own and redevelop the hulking former Centerior Energy Corp. headquarters in Independence as a multitenant office building, filed the lawsuit Oct. 20 in the Cuyahoga County Court of Common Pleas. Mr. Wallner is managing partner of King James.
Defendants are Fremont Investment & Loan of Anaheim, Calif., and LAM-Independence LLC, a limited liability corporation that gives as its property tax-mailing address the Los Angeles office of Maefield Development Corp., although Maefield is based in Bloomington, Ind.
The Anaheim lender originally foreclosed on the property in March 2002 because 6200 Oak Tree couldn't make its debt payments. The local owner agreed to turn the property back to the bank, assuming that it would ultimately have the right to buy it back. However, control of the building wasn't retained by the bank, but instead went to LAM, a real estate developer that specializes in buying distressed properties.
In its lawsuit, 6200 Oak Tree claims that the lender had indicated that the building would be turned over to an entity controlled by the bank itself, not a developer like LAM.
The owner agreed to transfer the building to the lender to speed up the legal process and to get the lender to provide money for building improvements to land another tenant, according to the complaint.
The deal was arranged so that 6200 Oak Tree LLC had the right of first refusal to buy back the building through Aug. 28, 2004, if LAM put it up for sale. Such a sale commonly follows a bank foreclosure because most banks don't want to own real estate. But because LAM is real estate developer, not a bank-controlled entity, it isn't expected to want to sell the building. Therefore, the right of first refusal is useless, 6200 Oak Tree contended in its complaint.
In the lawsuit, 6200 Oak Tree said that Fremont hid its plans to transfer the building to LAM. The lender had sold its note on the property to LAM before it even filed the foreclosure, but it did not disclose that to the court or to 6200 Oak Tree.
The assignment of that $9.8 million note also was not recorded by the lender or LAM. 6200 Oak Tree didn't learn that LAM actually controlled the note until after LAM received the deed, according to the lawsuit.
Since LAM got title to the property, it has attempted to refinance the building, which would further cut off 6200 Oak Tree from being able to recoup the building, according to the lawsuit.
In the lawsuit, 6200 Oak Tree seeks $25 million in assorted damages, another $25 million in punitive damages, and a court order preventing another transfer of the property.
Scott Manlin, a Fremont vice president and manager of its Chicago regional commercial lending office, declined comment on the case.
Mark Siffin, president of Maefield Development, did not return three telephone calls for comment. The 6200 Oak Tree building now is shown on Maefield's Internet site, which says the company specializes in buying bank-owned properties.
Mr. Wallner also declined comment.
When Fremont filed the foreclosure, Mr. Wallner chalked it up to a lender dispute that had precluded a financial workout on the property, where leasing had lagged in a worsening office market. The structure houses many tenants, including Clear Channel Corp.'s Cleveland radio stations.